Fed Keeps Rally Alive

Wall Street soars for a second day as traders bet on further easing.
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Updated from 4:11 p.m. EST

Stocks in the U.S. surged Wednesday and extended the previous session's rally as comments from a high-ranking

Federal Reserve

official suggested further rate cuts could be on the table.

The

Dow Jones Industrial Average

soared 331.01 points, or 2.55%, to 13,289.45. It was the fifth consecutive triple-digit move -- three up and two down -- on the Dow in as many sessions. Over the last two sessions, the Dow has jumped 563 points, but it still remains 4.6% lower for the month.

"These moves are just unbelievable," said Paul Mendelsohn, chief investment strategist with Windham Financial. "The volatility creates a hard market to deal with. It varies between which areas stand to benefit the most, but that flexibility may be the reason we could see a rally extend through the rest of the year."

Philip Roth, chief technical market analyst with Miller Tabak, argued that "a 100-point move isn't even 1% on the Dow anymore, and that's not unusual. It's sort of a fluky number to go by."

Indeed, the Dow also had a five-session span of triple-digit changes stretching from late July into early August.

All 30 of the Dow's components traded higher, led by advances of 4.3% or more in

Citigroup

(C) - Get Report

,

AIG

(AIG) - Get Report

,

General Motors

(GM) - Get Report

and

Intel

(INTC) - Get Report

.

The

S&P 500

was up 40.79 points, or 2.86%, at 1469.02, and the

Nasdaq Composite

jumped 82.11 points, or 3.18%, to 2662.91, supported by gains in Internet stocks

Amazon.com

(AMZN) - Get Report

,

eBay

(EBAY) - Get Report

and

Yahoo!

(YHOO)

.

Breadth was decidedly positive. On the

New York Stock Exchange

4.50 billion shares changed hands, as advancers beat decliners by a 7-to-1 margin. Volume on the Nasdaq reached 2.46 billion shares, with winners topping losers nearly 4 to 1.

Giving the market a lift were remarks from Fed Vice Chairman Donald Kohn, who said policymakers need to be "flexible and pragmatic" in order to deal with the uncertainty in the economy and financial arena.

He offered that the central bank should be "nimble" with its response to developments in the markets and not be paralyzed by fears of creating a "moral hazard," thus providing hope for those who want to see the Fed reduce rates again. The fed funds target rate has been lowered to 4.50% from 5.25% in recent weeks.

Many traders want additional easing in order to help the market, specifically the financials, navigate through the subprime mortgage mess that has forced billions of dollars in writedowns by Wall Street banks and is likely to lead to more.

"Kohn is rekindling hopes the Fed will cut at the December meeting," said Peter Cardillo, chief market economist with Avalon Partners. "The market is now beginning to focus on the fact that most of the dangers that have emerged over the past few months may be behind us."

Cardillo warned that optimism over a Fed rate reduction next month may be overdone "unless we see job growth erode, which would come in the form of a negative number in nonfarm payrolls data."

Among subsector indices trading higher, the Philadelphia Housing Sector Index added 4.9%, the S&P Retail Index rose 4.6%, the NYSE Financial Sector Index finished up 4.2%, and the Philadelphia Semiconductor Sector Index climbed 2.4%.

Michael Sheldon, chief market strategist with Spencer Clarke LLC, said that there is short-term buying interest in beaten-down areas of the market, and that a second winning session in a row should add to near-term positive sentiment.

"However, continued worries in terms of falling consumer confidence, weak housing data, high energy and food prices, liquidity concerns among financials, tightening credit conditions in the economy, along with poor market internals are likely to limit the stock market's advance in the days ahead," he said.

Kohn's comments arrived on the same day as Fed's regional survey, known as the beige book. The anecdotal report on economic conditions in 12 districts around the country will be considered at the Federal Open Market Committee's Dec. 11 policy meeting.

According to the document, economic activity expanded "a reduced pace compared with the previous survey period" in October and early November. The report noted that most retailers were expecting a slow holiday season and that a glut of available homes kept pressure on prices and construction activity.

"Demand for residential real estate remained quite depressed, with only a few tentative and scattered signs of stabilization amidst the ongoing slowdown," the beige book read. "The pace of homebuilding remained very low in general, and builders continued to shelve projects and lay off workers in many areas; contacts generally do not expect a significant pickup in homebuilding until well into next year at the earliest."

Last time out, a cash injection into Citigroup jump-started the financial sector and, in turn, the major averages. The Dow climbed 215 points, or 1.7%, to 12,958.44, and the S&P 500 added 21.01 points, or 1.5%, at 1428.23. The Nasdaq rose 39.81 points, or 1.6%, to 2580.80.

"Yesterday's technical bounce is little more than that, but it was a good start," said Marc Pado, U.S. market strategist with Cantor Fitzgerald. "The dollar managed a modest bounce. Again, it isn't a big enough move to get overly excited about, but it was a move in the right direction."

Not all the news was positive, though.

Wells Fargo

(WFC) - Get Report

said after the previous close that it will take a $1.4 billion charge due to its exposure to bad loans. Still, shares rose 3% to $30.72.

Freddie Mac

(FRE)

chimed in, saying it plans to halve its dividend and sell $6 billion of preferred stock in order to raise cash. Freddie Mac jumped 14.3% to $29.42 despite the moves.

Also on the economic front, the National Association of Realtors said existing-home sales declined 1.2% in October to a 4.97 million yearly pace, matching estimates. Inventories of unsold homes rose 1.9% to 4.45 million annualized units.

"The inventory and price data are worse than September," said Ian Shepherdson, chief economist with High Frequency Economics. "At the same time, prices appear to be collapsing. With inventory so massive, prices will keep falling."

Earlier, the Commerce Department said durable goods orders for October fell 0.4%, more than economists had expected. Excluding transportation, orders fell 0.7%, compared to forecasts of a 0.3% rise.

Commodity prices retreated. Crude tumbled $3.80 to close at $90.62 a barrel. Gold futures dropped $13.70 to $800.30 an ounce, and silver was off 15 cents at $14.33 an ounce.

Prices for oil pulled back following the Energy Department's weekly inventory report that showed a less-than-expected draw in crude inventories last week.

U.S. Treasury securities were falling, pushing yields higher. The 10-year note was down 21/32 in price, yielding 4.02%. The 30-year bond was off 24/32, yielding 4.40%.

Overseas markets were mostly to the upside. In Asia, Hong Kong's Hang Seng added 0.6%. Japan's Nikkei 225, however, was off 0.5%. Among European bourses, London's FTSE 100 rose 2.7%, and Germany's Xetra Dax was up 2.6%.